A recent The Recorder story by Ross Todd, “Judge Again Says She’s ‘Disappointed’ in Plaintffs Lawyers in Anthem Data Breach Case ,” reports that the federal judge overseeing litigation targeting Anthem Inc. with data breach claims on continued her grilling of plaintiffs lawyers who represent the health insurer’s customers about the number of firms who worked on the case.

U.S. District Judge Lucy Koh asked lead plaintiffs counsel, Eve Cervantez of Altshuler Berzon and Andrew Friedman of Cohen Milstein Sellers & Toll, a string of detailed questions about which lawyers submitted bills on work settling the litigation, who defended depositions of name plaintiffs and who handled basic discovery tasks.  Koh previously grilled the lead plaintiffs for having 49 other firms beyond those on the four-firm plaintiff steering committee she appointed.

After Cervantez said that 27 firms had worked on the “crisis” of getting through millions of pages of discovery, Koh stopped the plaintiffs lawyer.  “Is that how you run most of your cases?  You have 27 firms doing document review?” the judge said.

Cervantez said it didn’t matter who did the work or the firm where they practiced, but “were the hours expended reasonable.”  “How is that consistent with the conversation that I had with you and Mr. Friedman at the selection of counsel hearing?” asked Koh, who initially trimmed the lead plaintiffs proposed six-member steering committee to two firms.

Plaintiffs struck a $115 million settlement deal with Anthem last June, which included a proposed $38 million in attorney fees, or 33 percent of the total settlement.  The deal provided two years of credit monitoring and identity protection services to Anthem customers whose personal data was compromised in the 2015 breach, and creates a $15 million fund to reimburse customers for things such as falsified tax returns.

The Competitive Enterprise Institute’s Center for Class Action Fairness filed an objection last year on behalf of Adam Schulman, an attorney at the Washington, D.C., organization, partially because of the fee request.  Schulman claimed fees should be closer to $13.8 million and questioned why 49 other firms not appointed by the court stood to earn a total of $13.6 million in fees as part of the settlement.

Koh told plaintiffs counsel that she was “deeply disappointed” about the number of firms brought on to handle the case at a hearing in February.  At Schulman’s request, she appointed a special master, retired Santa Clara County Superior Court Judge James Kleinberg, to comb over the fee request.

Kleinberg, who is now a mediator and arbitrator at JAMS, pointed to duplicate efforts and excessive billing rates for contract lawyers in suggesting in April that the fee award be trimmed to $28.59 million. 

Koh didn’t tip her hand on where she will ultimately come out on the fee request, but she did indicate that she’ll rule on final approval of the deal by late July.  She asked the plaintiffs to hand over detailed records about document review, depositions and post-settlement work.

“I would like to be able to see who did what work when at what hourly rate and for how many hours,” she said.  “I think I’ve already indicated that I’m disappointed, but it is what it is.”

A recent NLJ story by Amanda Bronstad, “Anthem Data Breach Attorney Fees Report Faulted by Plaintiffs Lawyers and Objector,” reports that plaintiffs lawyers in the Anthem data breach settlement have objected to the report of a court-appointed special master, which found what it said was inappropriate billing and recommended their $38 million fee request be slashed by nearly 24 percent.

In a court filing, lead counsel Eve Cervantez of Altshuler Berzon and Andrew Friedman of Cohen Milstein Sellers & Toll — along with plaintiffs steering committee lawyers Michael Sobol of Lieff Cabraser Heimann & Bernstein and Eric Gibbs of Girard Gibbs — wrote that special master James Kleinberg should abandon his findings.  They stuck to their original fee request, which compensated 49 additional law firms.

“The court should defer to counsel’s judgment here as to the number of hours required to reach the $115 million settlement and achieve the significant changes in business practices,” they wrote.  “Because plaintiffs have shown that the hours spent in the case were reasonable and non-duplicative, the court should not reduce the requested fee award based on the number of law firms that billed for those reasonable hours.”

Frank, representing an objector to the settlement who had asked for a special master, called the report “a disappointingly superficial review” of lead plaintiffs attorneys’ billing, according to an objection he filed.  “As an initial matter, the special master’s report did not accomplish what the court assigned the special master to do,” wrote Frank, of the Competitive Enterprise Institute’s Center for Class Action Fairness.  “The special master’s rough review failed to determine the propriety of the hours billed and is insufficient to uncover the extent of the duplication and inefficiencies that this court sought.”

Koh appointed a special master earlier this year to look into potential overbilling, stating that she was “deeply disappointed” in the fee request.  She was particularly troubled that the request was made for 53 law firms, particularly since she had explicitly wanted a lean leadership team in the case.  On April 24, Kleinberg, a retired Santa Clara County Superior Court judge who is now a mediator and arbitrator at JAMS, recommended a fee award of about $28 million in his report.  Most of the reduction came from cutting the rates of 33 contract attorneys and shaving 10 percent due to potentially duplicative billing.

As to the contract attorneys, Kleinberg found their billing rates to be “inappropriate.” Plaintiffs lawyers paid them $25 to $65 per hour but, in their fee request, asked for an average of nearly $360 per hour for those lawyers.  His report lowered the rate to $156 per hour — that of a paralegal.  He also chastised a “virtual army of billers.”

“The special master is not accusing plaintiffs’ counsel of deliberate overbilling,” he wrote. “However, every time a new law firm was added to the group, those lawyers had to spend time learning the history, issues and facts being litigated.  Thus, the inevitable result of 53 firm billing participants presents at least a strong probability of duplication and unreasonable hours.”

His report also looked at the percentage of the fund and the 25 percent benchmark in the U.S. Court of Appeals for the Ninth Circuit.  Plaintiffs attorneys noted in their objection that the report found that an average hourly rate of $455 per biller was not excessive.  And they continued to emphasize that the case was novel and complex.  As to the 53 law firms, they wrote “the question is not how many firms a paying client would retain, but how much the client would pay to have the work done.”

The additional 49 firms “were forbidden to bill for any start-up time learning the facts and law of the case,” they wrote, and had $1.5 million already cut from their lodestar.  The special master’s reduction of contract attorney rates was also unreasonable, they wrote.

“This recommendation was in error, and plaintiffs are not aware of any court to have adopted this approach,” they wrote.  “Plaintiffs are aware of no authority supporting the proposition that it would be permissible, let alone reasonable, to delegate such crucial legal work to paralegals.”  They also criticized the special master’s deduction of their expenses and service awards from the fee amount.

A recent The Recorder story by Amanda Bronstad, “Judge Hires Special Master to Vet Attorney Bills in Anthem Settlement,” reports that a federal judge in California said she plans to hire a special master to scrutinize the billing records of plaintiffs firms in Anthem’s $115 million data breach settlement.

“I’m deeply disappointed,” U.S. District Judge Lucy Koh told lead plaintiffs attorney Eve Cervantez at a hearing in San Jose.  Koh, who has been a critic of attorney billing in past cases, appeared to be particularly incensed about how plaintiffs attorneys Cervantez, of San Francisco’s Altschuler Berzon, and Andrew Friedman, at Washington D.C.-based Cohen Milstein Sellers & Toll, brought in 49 other law firms—all of which submitted bills as part of a $38 million fee request.

Among those additional firms were four of the eight law firms that Koh explicitly trimmed from the initial leadership team in 2015.  Koh appointed Cervantez and Friedman as lead counsel along with plaintiffs steering committee members Michael Sobol of Lieff Cabraser Heimann & Bernstein and Eric Gibbs of Girard Gibbs.

“I would never have appointed you or Mr. Friedman, had I known you were going to pile on 53 law firms on this case,” she said.  “And I’m going to keep that in mind if you apply for appointment of counsel in another case with me.  I never would have approved 53 law firms in my case.  If I thought eight was too many, what made you think I wanted 53 firms churning on this case?”

In court, she said she planned to appoint retired Santa Clara County Superior Court Judge James Kleinberg, now at JAMS in San Jose, to be special master, but she allowed both sides to submit oppositions to her selection or alternative candidates by Feb. 2.

Cervantez, who acknowledged she had never been in charge of multidistrict litigation before, attempted to explain how most of the firms were not in charge of the “high level” decisions in the case and were brought in primarily to find more than 100 lead plaintiffs in the consolidated class action complaint.

“I understand you’re upset,” she said.  She noted that 26 law firms were involved “because they specifically had plaintiffs in the case, were involved in vetting plaintiffs, and they were involved in discovery responses and the depositions of their plaintiffs.”  Moreover, people’s data had been hacked, she pointed out.  “Time was of the essence here,” she said.  “We could have had fewer firms working on the case, and it would have taken a much longer time.”

But Koh, who had asked plaintiffs counsel for additional billing records earlier this week, went over the records one by one, questioning why of the 329 lawyers who submitted bills in the case, more than 100 were partners, and more than two dozen were contract attorneys charging $300 to $400 per hour.

“I would like you to find a single paying client that would have approved these type of markups in a contract attorney,” she said.  She ordered plaintiffs lawyers to submit detailed records, including those involving contract attorneys.  “I’m supposed to be watching out for the interests of the class,” she said.  “I’m entitled to know how much profit you think you’re entitled to with regard to every one of these people.”

In court papers, Cervantez and Friedman defended their $38 million fee request.  In a Jan. 25 reply brief, they said the fee request was less than eight percent of the settlement’s estimated $500 million value, when including credit monitoring, and 33 percent of the $155 million amount, which was justified due to the “exceptional results” and “extremely risky nature” of the case.  The $115 million settlement also would provide a $15 million fund to compensate class members.

As to the settlement itself, Koh said she was inclined to “wait on final approval and get all this sorted out.”  Prior to the hearing, the judge had ordered additional briefing on the effect that the U.S. Court of Appeals for the Ninth Circuit’s Jan. 23 ruling in In re Hyundai and Kia Fuel Economy Litigation could have on the settlement.  The 2-1 Hyundai decision reversed certification of a nationwide class of car consumers after concluding that the district judge failed to consider potential differences in various state consumer laws in finding that common issues predominated in the settlement.  The decision sent shock waves throughout the class action bar for potentially threatening the viability of class action settlements in the Ninth Circuit.

But Koh didn’t ask many questions about Hyundai during the hearing.  She did, however, raise several questions about the claims rate, which she calculated at about 1.86 percent of the total class.  More than 78 million people had their personal information compromised in Anthem’s data breach in 2015.  And she raised concerns about the settlement’s structure.  “It does bother me that 55 percent would go to attorney fees and administrative costs and only 45 percent goes to class members,” she said.

A recent The Recorder by Amanda Bronstad, “Plaintiffs Lawyers in Anthem Data Breach Settlement Defend $38M in Fees” reports that plaintiffs lawyers are fighting accusations by an objector that their $38 million fee request in the Anthem data breach settlement was “outrageous on its face” and required a special master to investigate potential over-billing.

“In effect, objector contends that counsel should have litigated this case on the cheap, rather than devoting the resources (and taking the risks) necessary to litigate it well and protect the class,” wrote co-lead plaintiffs attorneys Eve Cervantez and Andrew Friedman in a response filed Jan. 18.  “To put it simply, the lodestar in this case reflects first-rate lawyering that yielded a first-rate result, something this court is well equipped to rule upon.”

As for a special master, there was no need for such “satellite litigation,” which would only delay the case and incur costs, they wrote.  “Rhetoric aside,” they wrote of the objector, represented by class action critic Ted Frank, “he identifies no billing improprieties that would raise serious questions about counsel’s fee request and which might make the services of a special master useful to the court.”

U.S. District Judge Lucy Koh of the Northern District of California has scheduled a Feb. 1 hearing for final approval of the $115 million settlement, though a hearing on the special master request is expected to be on April 5.  The settlement provides two years of credit monitoring and identity protection services to more than 78 million people whose personal information was compromised in 2015.  It also provides a $15 million fund to compensate for costs such as credit monitoring services and falsified tax returns.

Frank, of the Competitive Enterprise Institute’s Center for Class Action Fairness, filed an objection last month on behalf of Adam Schulman, who is an attorney at his Washington, D.C., organization.  He wrote that the fee request, which is 33 percent of the settlement, should be closer to $13.8 million when subtracting $23 million in notice and administration costs.  He also questioned why 49 other firms not appointed by the court stood to earn a total of $13.6 million in fees and “whether there were side agreements to back scratch or trade favors in other MDLs to get work in this MDL.”

But he was especially critical of the average $360 hourly rate for contract attorneys submitted by the four firms, one of which is San Francisco’s Lieff Cabraser Heimann & Bernstein, which was on the plaintiffs steering committee along with Girard Gibbs in San Francisco.  A special master in Boston is investigating Lieff Cabraser, along with two other law firms, for potential over-billing for staff attorneys in a $74.5 million fee request in securities class action settlements with State Street.  Cervantez, of San Francisco’s Altshuler Berzon, and Friedman, of Washington, D.C.-based Cohen Milstein Sellers & Toll, wrote in their response that there are no similarities between the two cases.

“There is absolutely no indication that counsel’s fee application here suffers from the perceived irregularities that have prompted some trial courts to enlist the assistance of a special master,” they wrote.  In State Street, a special master was appointed after class counsel admitted their lodestar was initially overstated due to a mistake in double counting time for contract attorneys.  “Here, to the contrary, there is no suggestion that counsel duplicated any amount of the lodestar, inadvertently or otherwise,” they wrote.

But in a declaration, Cervantez said she had discovered “three clerical errors”: One associate at Scott + Scott was incorrectly identified as a contract attorney, as were staff attorneys at Lieff Cabraser, and the rate for an associate at Goldman, Scarlato Penny in Conshohocken, Pennsylvania, should have been $495, not $595, per hour.

In declarations filed with the court, Friedman, Cervantez, Lieff Cabraser’s Michael Sobol and Eric Gibbs of Girard Gibbs insisted they had not “made any agreements to exchange work or fees in this case for work or support for leadership positions in another MDL or in any other case.”  Friedman and Cervantez added that they made all work assignments to other firms “on the basis of efficiency and relevant experience and expertise.”

A recent Bloomberg Big Law Business story by Gabe Friedman, “Wells Fargo Lawyers Were Too Cost Focused, Report Says,” reports on the recent abusive sales practices of Wells Fargo.  The story reads:

After taking six months to investigate how Wells Fargo became enveloped in an abusive sales scandal, Shearman & Sterling has produced a 113-page report (pdf) that lays into the legal department for missing the big picture and focusing too much on legal cost containment.  The report was commissioned by the board of directors, which in September retained Shearman to assist an oversight committee in examining the scandal, in which bank employees created an untold number of fraudulent bank accounts in customers’ names in order to meet their sales targets.

The team of Shearman lawyers interviewed 100 people, mostly in senior management, and reviewed 35 million documents, collected from 300 custodians with FTI Consulting providing data analytics assistance, according to a note within the 113-page report.  It assesses each department in the bank, from human resources to audit, for its contribution to the scandal.  Although the law department is far from alone in the blame, the Shearman team repeatedly knocked the department under former general counsel James Strother for failing to see a pattern and recognize the seriousness in a growing number of incidents beginning in 2011 related to improper sales practices.

Right up until September 2016, “there continued to be a lack of recognition within the Law Department (as in other parts of Wells Fargo) about the significance of the number of sales integrity terminations, and the potential reputational consequences associated with that number,” the report notes.  “The Law Department’s focus was principally on quantifiable monetary costs — damages, fines, penalties, restitution.”

It adds, “Confident those costs would be relatively modest, the Law Department did not appreciate that sales integrity issues reflected a systemic breakdown in Wells Fargo’s culture and values and an ongoing failure to correct the widespread breaches of trust in the misuse of customers’ personal data and financial information.”

Former general counsel Strother, who retired last month, also comes up for serious scrutiny in the report including that the board’s risk committee felt badly misled for a presentation he was involved in.  Most notably, according to the report, in May 2015, three weeks after the Los Angeles City Attorney’s Office filed a lawsuit against Wells Fargo, accusing it of setting unrealistic sales goals that created pressure on employees to resort to opening fraudulent accounts, Strother and Carrie Tolstedt, head of community banking made a presentation to the board’s Risk Committee about the matter.

The Risk Committee specifically requested the number of employees that had been fired up to that point related to improper sales practices, which numbered around 2,600 at that point, the report states.  But this number was deleted from the presentation during a pre-conference call between members of the legal department and Tolstedt’s community banking department — for reasons no one could recall, according to Shearman.

Instead, the Risk Committee heard that only 230 employees had been fired and that “the root cause was intentional employee misconduct, not systemic issues,” according to the report. It was the first time that the committee even heard that there were as many as 230 terminations, and members “felt blindsided by the disclosure,” the report says. 

And in fact, the report notes, the actual number of people who had been fired or resigned as a result of investigations was closer to 2,600 at that time.  “Multiple Board members have stated that they felt misled by the presentation; they left with the understanding that sales integrity terminations were in the range of 200-300 and were largely localized in Southern California,” the report states.  “The Board was not provided with the correct aggregated termination data until well into 2016.”

While the report does credit some members of the law department with making “commendable attempts to address the sales abuses … through work on various committees,” it faults its members for not fully considering “whether there might be a pattern of illegal conduct” rather than a series of discrete legal problems.

Already, the report is being held up as a rare inside look at how a law department failed to mitigate a problem before it grew into a full scandal that resulted in major regulatory fines and executive management changes.  “This is the Wells Fargo Investigative Report.  It is well worth reading.  The next in the chronicles from Enron to GM,” Abercrombie & Fitch’s general counsel Robert Bostrom wrote on LinkedIn on Monday.

Amar Sarwal, vice president and chief legal strategist of the Association of Corporate Counsel, agreed that the report is likely to be studied by lawyers in the future.  “Normally you’re not going to have the confidential workings [of a law department] exposed like this,” Sarwal said.

The fact that it is written by a law firm, and critiques a corporate law department for focusing too much on cost containment and not seeing the big picture marks an “intriguing turnaround” from the normal roles, he added.  It is more common to hear corporate law departments critique law firms for being too focused on the billable hour and not spending enough time learning their client’s business.

The Shearman team was lead by New York partner Stuart Baskin, a former federal prosecutor in Manhattan.  Baskin previously represented J.P. Morgan’s board of directors as it dealt with the London Whale scandal, which involved a trader who accumulated an outsized position in the credit default swap market and lost $6.2 billion, raising questions about the bank’s risk management system.

Sarwal said the report puts a spotlight on the fact that all corporate lawyers, both in house and at law firms, face a tension between advising their client on a specific matter, and advising them on how to run their business.  “There’s this idea that the lawyers are the conscience of the company, but they’re not,” he added.

Instead, they operate within the hierarchy of the company and have to work with other executives to identify and solve problems.  He criticized the report for not contextualizing what else the law department had on its plate as the sales abuse problem unfolded, but nonetheless praised it as useful information.  “For GCs, this report is just another reminder that your job involves trying to change a real culture of human beings,” said Sarwal.

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